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CHAPTER ONE
INTRODUCTION
10 BACKGROUND OF THE STUDY.
The banking industry is highly competitive, with banks not only competing among each
other; but also with non-banks and other financial institutions (Kaynak and Kucukemiroglu
1992; Hull, 2002).
The argument for customer retention is relatively straightforward. It is more economical to
keep customers than to acquire new ones. The costs of acquiring customers to “replace”
those who have been lost are high. This is because the expense of acquiring customers is
incurred only in the beginning stages of the commercial relationship (Reichheld and Kenny
1990).
Customer satisfaction therefore seeks to appreciate the difference between customer’s
expectation, perception, demands and more importantly the extent to which these desires can
be met.
There is more level of customer satisfaction and various implications for each level of
demand. Dissatisfied customers will be searching for some company to provide them with a
different product or service even satisfied customers open up for next better opportunity, it is
only loyal customers that return despite offers from competitors.
Customers’ satisfaction is all about customers experience with an organization. If customers
have bad experiences, they are simply going to withdraw from the organization for another.
If customers encounter an average level of experience then they become open to being
attracted to some organization. It is therefore difficult for satisfied customer and in turn
moves to an organization's competitor.
As member of the Standard Bank Group, Stanbic Bank Ghana prides itself in being part of
Africa’s largest bank, a bank that has representation in 17 African countries and 16 in the
Americans and Asians. The Group recently cemented its connections with China, when the
International Commercial Bank of China (ICBC) the world’s largest bank, acquired a 20%
stake in the Standard Bank Group.

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Stanbic Bank Ghana has a group of network of 22 branches in the nine regions of the
country. With this network, the Bank is well positioned to become even more relevant to all
key sectors of the Ghanaian economy. (On the back of what has been remarkable growth
both in the areas of profitability and consolidated operations).
Before 1983, the formal banking system in the country was dominated by state owned banks
that had a monopoly in terms of their spread and operations. The current banking
environment has however changed, ‘With the passage of the universal banking law however,
all types of banking can be conducted under a single corporate banking entity and this
greatly reorganises the competitive scopes of several banking products in Ghana’. Thus
reform and deregulation has brought the banking sector into the competitive arena in terms
of customers and products.
This means strategic management decisions should take into consideration factors that
promote customer satisfaction, customer retention, customer loyalty, increased market share
and firm profitability. .
Most previous studies have focused on customer retention and have ignored the importance
of customers' cross-buying behaviour. Customer retention seems to be the result of a kind of
repetitive decision by the customers, but their decision to cross-buy involves a more
complicated process. (Li-Wei Wu and Tsung-Chi Liu1 2007)
Financial institutions play a crucial role in facilitating the accumulation and allocation of
capital by channelling individual savings into loans to governments, businesses and
individuals. In Ghana, the role of the banking sector in capital concentration and distribution
cannot be disputed.
The current credit crunch has affected the performance of many banks globally. Thus
institutions that adopt strategies to compete better are more likely to survive in the long run.
Within the banking sector, customer loyalty to businesses is one way of keeping banking
businesses competitive.
In this study we investigate the determinants of customer loyalty as well as customer
retention and whether these lead to increased market share and firm profitability in the
Ghanaian banking industry, especially Stanbic Bank Ghana.

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In the banking industry of Ghana high customer retention is hypothesised to be linked to
high firm performance. Bankers consider customer loyalty as important to market share
maintenance and profitability.
Because of the high customer care, the debate as to what drives customer loyalty is still
widespread. And we should not accept or reject assumptions and speculations ‘unless we
study these assumptions critically and unless we find logical and reliable explanations to
accept or reject them’.
According to Portela & Thanassolis (2006), not only empirically studies of the relationship
between service quality and customer loyalty in banking system are limited, but also the
existing studies on bank branches efficiency in general do not account for the changing role
of bank branches. Service quality is of utmost importance in analyzing the performance of
bank branches, since their survival depends on their service quality levels they provide.
In his keynote address to the Fifth Banking Award Ceremony, the then Governor of the
Bank of Ghana, Dr Acquah mentioned among others that universal banking was to foster the
entry of new banks, liberalise the choice of banking services, increase branch network and
competition for deposit at the retail level (Acquah 2006).
Customer retention is all about knowing your customer personally or through the company’s
database. The company should keep track of everything they buy and ask them if they were
satisfied with their last purchase.
The customers must been seen the most valuable assets of the service company because they
do not only pay for the service, if the company listen to them, they will tell the company
how they can get them to spend even more.
It is important for companies in the financial institutions to view relationships from their
customer’s perspectives. The relationship is more than the customer just buying product and
services regularly. This is due to customers being aware of the difference between; repeat
buying, based on convinces, non-emotive factors like price, or situations where the
customers return repeated times to the same company or brand because they have a special
feeling for them. What a brand or company means to a customer is dependent on how it fits
to the customer values (Barnes 2003). Managers need to recognize the importance of
creating value for their customers in form of experience.

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1.1 STATEMENT OF THE PROBLEM
This study explores the impact that improvements in customer satisfaction could have on
customer retention at Stanbic Bank Ghana, as it is a key indicator of customer retention,
which in turn affects profit.
A first step towards this study is the need to understand the determinants of customer loyalty
and firm profitability. Then strategic decisions could be made to increase market share and
profitability.
The changes in the commercial banking sector have fuelled banks with a conviction to
maximizes profits in chase of thriving Stanbic Bank Ghana statistics that focus on the
revenue potential of the market, resulting in a profit orientation that sidelines key indicators
of customer retention like customer satisfaction.
The purpose of customer relationship management is to create relationship strategies that
will refine relationships between the customer and the organization and in that way increase
the value for both parties as well as to ensure customer retention. Therefore there is the need
to investigate the relationship between management of Stanbic bank and its customers which
will determine the effectiveness of customer retention.
The services and customer relationship in Stanbic bank is poor and as such drives away
many customers, the researcher wants to investigate into details if interpersonal relationship
has an impact on customer retention and how it can be improved.
1.2 OBJECTIVES OF THE STUDY
1.2.1 GENERAL OBJECTIVES.
The purpose of this study is to investigate the loyalty and customer profitability drivers in
the banking industry in Ghana drawing on empirical evidence from surveyed customers.The
overall purpose of the study is to increase our understanding of customer retention by

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investigating the relationship between the banking industry and their customers, and the
ways in which the banks can develop relationships in order to enhance customer retention.
1.2.2 SPECIFIC OBJECTIVES
The research more specifically aimed at:
a) To identify the level of satisfaction of customers with interpersonal communication at
Stanbic bank, Ghana.
b) To identify the level of satisfaction of customers with service performance at Stanbic
Bank Ghana.
c) To identify the level of satisfaction of customers with complaint handling at Stanbic
Bank Ghana.
d) Identifying other areas within the service provision system that have a bearing on
customer’s retention.
e) Whether customers are willing to continue business transactions with Stanbic bank.
f) The ability of Stanbic bank to retain its customers.
1.3 RESEARCH QUESTIONS.
We pose the following questions in our search to understand the factors influencing
customer loyalty and retention in the Ghanaian banking sector.
a) What are the main drivers for customer retention in Stanbic Bank Ghana?
b) What are the barriers to customer retention in Stanbic Bank Ghana
c) Does customer satisfaction lead to customer retention?
d) Do dissatisfied customers switch to other banks in order to experience better customer
relations?
1.4 JUSTIFICATION FOR THE STUDY.
In today's fast and competitive modern world, the challenge that the banks faces isto serve
customers in the most effective way. In the world of big international business industries
where transactions and other business operations are governed by law, cultural differences
and mutual trust, profitability has been a common entrepreneurial aim.

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In this light, the completion of this research activity will enable deeper understanding of the
concept of customer retention which could be of use to other financial institutions in
assessing and evaluating their customer service quality. Other government establishments
from different localities can also utilize the findings of this study for the benefit and
improvement of their own public service. This study will spell out how customer retention
can be useful in the Ghanaian banking industry especially Stanbic Bank Ghana.
It will also provide a guideline for the formulation of important outmost strategies that
Stanbic bank adopt for effective bank customer retention.
This study wills also help in the improvements of the level of satisfaction with interpersonal
communication that will increase customer retention at Stanbic Bank Ghana. In addition this
study will provide Stanbic Bank the opportunity to gain competitive advantage to survive in
the keen competition in the Ghanaian banking industry as well as higher profitability.
Moreover, the results and findings of the study will be able to contribute to the bulk of
information and relevant literature to the disciplines of customer service in the financial
institutions and human resources management may find the results of the study relevant to
future academic endeavours as well as practical applications.
1.5 SCOPE OF THE STUDY
The research would be undertaken in Sunyani in Brong Ahafo Region of Ghana. Data about
Stanbic Bank would be used as a case study.
Since the study is geared towards the investigation of several aspects of customer retention,
it is necessary to define the scope of the study being designed. More specifically, the
academic investigations will focus on the customers and the employees by collecting data
and information which will present their perspectives as the labour force and customers of
the organization.

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1.6 LIMITATIONS OF THE STUDY
Some of the respondents sometimes refuse to provide the needed information to embark on
the study. Also, feedbacks from some of the respondents sometimes delay and even refuse to
answer some of the questionnaires and misrepresentation of facts that affects the study.
There is limited finance which in turn limits the sample size of the study. Some of the
respondents also misrepresented facts that affected the study.
1.7 ORGANIZATION OF THE STUDY
This study is organized into five chapters: The first deals with the introduction of the study,
the background of the study, statement of the problem, objective of the study, (general
objectives, specific objectives) research question, justification of the study, methodology,
scope of the research, limitations of the study and organization of the study.
The second chapter deals with the literature review, the definition of customer retention, and
importance of customer retention, risk associated with customer retention. It will also cover
relationship marketing, loan policy, credit analysis and appraisal, loan review and
evaluation, regulatory frame work of the Stanbic bank and credit functions of the Stanbic
bank.
Chapter three which is the methodology describes the research population, data source, the
procedure for administering the instruments and limitation of the study.
The fourth chapter which is data analysis deals with the composition of the respondents,
database management, credit beneficiaries, portfolio design, terms of loan, credit analysis,
loan authorization and approval, loan default, monitoring and reviewing.
The fifth chapter discusses the summary, summary of finding, recommendation, conclusion,
bibliography and appendix.